Process oriented measurements and improvements

- An analysis of the OFCE-process at Tetra Pak BU DBF

Ingemar Edman & Alejandro Lisson
July 2009

Department of Industrial Management and Engineering

Faculty of Engineering, Lund University
Box 118
SE‐221 00 Lund, Sweden

This article is based on the results of a master thesis carried out at Tetra Pak Business Unit Dairy
Beverage and Prepared food (BU DBF) during the spring of 2009. It aims to briefly present the case, the
methodology and theoretical framework, the findings and finally some conclusions. The main themes of
the thesis as well as the article are process improvements and performance measurements.

1. INTRODUCTION 2. PURPOSE AND OBJECTIVES OF THE

During the last decades markets have become
increasingly competitive due to globalization. As
the number of products available has increased,
so have the customer expectations in respect to
quality, service and price. Companies have thus
been forced to become process oriented in
order to increase efficiency and effectiveness to
provide more value to the customer. An
important step in achieving this is to introduce a
measurement system that can monitor
performance and determine improvement
areas.
Tetra Pak BU DBF is a company within Tetra
Pak that produces processing equipment for
dairy products, beverages and prepared food.
During the last years BU DBF has become
process oriented and at present they are working
with introducing the lean philosophy. To
overview the progress they in 2005 introduced a
measurement system called „New Milestones‟
which measures the internal delivery accuracy in
the order fulfilment process (OFCE). The
results from the last two years indicate issues in
the process and the delivery accuracy target
towards the external customers is only met
through the use of overtime and excessive
resources.
STUDY
The study is constituted by a critical analysis of
the OFCE-process as well as of its measurement
system, focusing on identifying improvement
areas. The process in Lund is going to be used
as benchmark for Tetra Pak‟s plants in
Greenwood, USA and Shanghai, China and
thus it is important that first identify and
eliminate issues here, both in process execution
and the measuring of it.
Based on the problems mentioned in the
introduction three objectives were formulated:
 The first objective was to establish a good
understanding of the process and its
characteristics.
 The second objective was to analyze the
process and identify improvement
possibilities.
 The third objective was to describe the
measurement system and its connections
to the process. The system should be
analyzed and improvements should be
suggested.

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3. METHODOLOGY
In order to fulfil the above described objectives
a case study was conducted. A case study is an
empirical research method that investigates a
contemporary event within its real-life context.
The case study relies on multiple sources of
information and is the preferred strategy when
the questions “how” and “why” are of interest
[1]. Since the objects of interest are the present
process and measurement system, and the
questions are of the described nature the choice
of research method is well motivated. The case
study was supported by a thorough literature
research which served as benchmark for the
proposed recommendations.
4. THEORY
The theoretical framework used for the study is
concentrated around three main areas, lean,
processes and performance measurements.
Lean
The original lean concept essentially aims at
eliminating waste that can be defined as activities
that increase cost without generating value to the
customers. The focus has historically been on
the production workshop [2] but lately it has
also been applied to the office environment.
The most commonly identified wastes are
overproduction, waiting, transport, inappropri-
ate processing, excess inventory, unnecessary
movements, defects [3] and unexploited
creativity [4].
Processes
Processes are networks of in order linked ac-
tivities that use information and resources to
transform input to output in order to satisfy the
customer‟s needs [5]. The process framework
can be used on different levels, to describe
entire procedures or a single activity. Since
processes are used to describe the work being
carried out in the organization, their designs are
of vital importance for the organizational per-
formance [6].
The best way to describe a company‟s processes
is by visualising them, i.e. by creating process
maps [7]. A process map can include different
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levels where the main process map is the highest
level and constitutes an overview of the
organizations most important processes. Process
maps should be complemented with process
specifications and depending on the
extensiveness of the process, it could be
necessary to break it down into several levels
[8].
Performance measurements
Performance measurements are processes to
quantify the efficiency and effectiveness of an
action [9]. They can be employed in very differ-
ent parts of a business, and they can be both
financial and non-financial. The purpose of the
performance measuring is essentially to
determine how the company is doing internally
as well as in an external environment and
influence people to take actions accordingly
[10,11].
There are several attributes that characterizes a
good measurement system. Good measures
must for example be well-defined and accurate
in order to provide trustable results. They
should also be easy to understand and
communicate, and their results should provide
feedback that can be translated into action.
Designing a measurement system is not an easy
task and many companies have “succeeded
despite their measurement systems, rather than
with of them” [12].
5. THE OFCE-PROCESS AND THE NEW
MILESTONES
The OFCE-process
The OFCE process starts when an order is
received from one of Tetra Pak‟s market
companies. The market company (MC) has,
prior to this, worked out an agreement with the
end customer which has been specified into an
order.
The OFCE-process essentially includes five
steps.
The first step of the process is all about devel-
oping an understanding of the order specifi-
cation and on assigning personnel to the dif-
ferent roles. When this is done budget cost and
transfer price are determined.
Following this is the creation of the technical
specification and the creation of configuration
documents for the design of the equipment.
The latter among others include flow diagrams
and the order BoM (Bill of Materials). When
these are done there is a planning meeting
where all aspects regarding the production of
the order are clarified.
Following the planning meeting is the
engineering of the different components. This
work includes designing the process according
to the requested performance, programming the
automation software used to operate the ma-
chine(s) and the creation of the mechanical
design drawings used in assembly. This phase
also involves costs calculations and the
purchasing of non-stock parts.
When all the machine specifications are done
and the ordered components have arrived, the
machine is ready to be assembled. This step of
the process includes the bending of pipes,
assembling, welding of components
(manufacturing) and electrical wiring. Once the
machine is assembled and ready, it can proceed
to the next step, the workshop tests.
This last step exists to ensure that the machine
follows the specifications, that it is correctly
assembled and that the software is correctly
programmed. When tests are completed and
possible deviations from specifications are
corrected, the machine is packed and sent to the
customer‟s site. There it is installed and tested
until it is meeting the agreed performance
specified in the order/contract.
New Milestones
The „New Milestones‟ is a measurement system
used to track the performance of the OFCE-
process. It focuses on measuring how well the
planned ready dates for the main activities are
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met. The system compares the actual ready date
with the planned ready date and monthly
presents how many of the orders that were on
time for each activity.
The New Milestones is currently constituted by
twenty measures which evaluate the perform-
ance of the OFCE-process from end to end.
Since poor results in one part of the process
could be related to problems in previous parts it
is necessary to have a holistic view.
6. CURRENT SITUATION AND
IMPROVEMENT POSSIBILITIES
The OFCE-process
The OFCE-process is well mapped and planned
but still contains a number of improvement
possibilities. The issues mostly exist in the
interfaces and handovers between functions,
where both sides has a responsibility and an
interest to contribute to a better solution.
One major problem is that orders are not fully
and correctly specified when received from the
market companies. The additional time spent
on clarifying the order delays the start of the
process and time lost here is hard to catch up
later. Since both sides of the handover exist
within Tetra Pak, there is a common interest to
improve. The market companies should make
sure that they do not place an order until they
have all the necessary input from the end
customer, and BU DBF should make sure that
order forms and instructions are clear and up to
date.
Another interface where problems exist is the
relation with the suppliers. Neither BU DBF
nor the suppliers follow the agreements stated in
the contract. BU DBF often requests a shorter
delivery time than agreed upon, while suppliers
sometimes confirms a longer delivery time than
agreed upon. In some cases the suppliers even
deliver later than they have confirmed. BU DBF
first has to make sure that their process comes
to a good start and that the contracts are aligned
with process specifications. There also must be
a dialogue with the suppliers about what
consequences late deliveries have, and how they
could be avoided.
Other issues are related to deviation from
process specifications in the daily work. The
process specifications state that all the additional
time spent clarifying an order should be added
to the delivery date. This is not done at the
moment.
The improvement possibilities does not only
cover the work conducted in the process, but
also the systems and documents that supports it.
Delays can occur as a result of inaccurate
templates, which have to be corrected. Inac-
curate template also increases the risk of
mistakes, which take time to correct.
Other causes of delays are high workloads and
insufficient competence.
New Milestones
After a thorough analysis of the measurement
system several issues could be identified. These
could basically be classified as either design and
measuring issues.
The first two Milestones focusing on the order
receiving and clarification are not measuring
what is intended. The given time specified for
certain activities are given in workdays while the
measuring measured differences between dates.
When working with tight deadlines this has a
significant impact on the results.
Another major issue with the „Order Con-
firmation Milestone‟ is that the system cannot
handle a long clarification phase, as it is
specified in the process description. This issue
can only be resolved through the introduction of
a „Date of clarification‟ to the measurement
system.
An issue primarily related to the Milestones
measuring the BoM and the automation
software is ambiguities in how to handle
revisions and changes (i.e. when there are two
ready dates for the same Milestone).
Researchers stress the importance that
4
measurements should be clearly defined, and
this includes handling every type of possible
scenario.
In relation with the ordering of components it
has been identified that the Milestones called
„Materials, Confirmed date‟ and „Materials,
Requested date‟ are not measuring what was
intended, indicating a better performance than
what was the actual case. This has diverted focus
from a problem area and redesign of the
measures is needed to reflect the true
performance.
All the Milestones related to the performance in
the workshop are handled in the same way.
They are taken from the ERP-system and put
through several filters. Unfortunately this
treatment does not guarantee that the data
presented is what was intended. The
recommendation is that the filters are adjusted,
to make sure that only the correct and relevant
data pass through.
The issue with „Delivery Accuracy Milestone‟,
the most important of the measures, is that it is
based on opinion rather than objective facts. If
an order is late there is always a possibility to do
a review of the reason and change it manually. It
is important that the measures do not leave any
room for subjectivity.
7. CONCLUSIONS AND
RECOMMENDATIONS
Deviations from the process descriptions
In general the process design seems to be
followed and only a couple of deviations from
the directives were identified. On the other
hand there are strong reasons to believe that
these deviations are causing problems in the
handling of the orders. All deviations from
process directives should be eliminated to be
able to observe the true process performance.
Delays throughout the process
The clarification of orders takes too much time
and delays later stages of the process. At the
same time, the engineering is suffering from
delays due to revisions of the BoM. To reduce
delays in these phases, feedback on the reasons
of the delays should be collected.
In relation with purchasing of components the
observed problems are related to late deliveries
from the suppliers. To solve this problem
dialogue, incitements and fines could be used.
In the testing of the produced equipment, most
of the interruptions are related to problems
originated in the previous phases. Here
feedback is available but it is not always used for
driving corrective actions.
Evaluation of the measurement system
The OFCE-process has some issues but the bad
results indicated by the „New Milestones‟ are
also related to problems with the measurement
system itself.
The most prominent issue is that the „Order
confirmation Milestone‟ does not take into
consideration that orders needs additional time
to be clarified. Further, the Milestone measuring
the ordering of components do not measure
what was intended and thus the results are not
indicating the real process performance.
In general the Milestones need to be reviewed
both in terms of design and measuring
procedures.
SOURCES
[1] Yin, Robert, 1994, Case Study Research -
Design and Methods, Second Edition, Sage
Publications, Thousand Oaks, CA
[2] Näslund, Dag (2008), Lean, six sigma and
lean sigma: fads or real process improvement
methods?, Business Process Management
Journal, Vol. 14, Issue 3, Page 269-287
[3] Ibid.
[4] Keyte, Beau & Locher, Drew, 2008,
Leanhandboken (orig. title The Complete Lean
Enterprise), Liber, Malmö
[5] Ljungberg, Anders & Larsson, Everth, 2001,
Processbaserad verksamhetsutveckling,
Studentlitteratur, Lund
[6] Hammer, Michael (2007), The Process
Audit, Harvard Business Review, Vol. 85, Issue
4, Page 111-123
[7] Galagan, Patricia A. (1992), Manage the
White Space: The Works of Geary Rummler,
Training & Development Vol. 46, Issue 8, Page
26-31
[8] Ljungberg, Anders & Larsson, Everth, 2001,
Processbaserad verksamhetsutveckling,
Studentlitteratur, Lund
[9] Bourne, Mike & Neely, Andy & Mills, John
& Platts, Ken (2003), Implementing
performance measurement systems: a literature
review, Int. J. Business Performance
Management, Vol. 5, Issue 1, Page 1-24
[10] Neely, Andy & Gregory, Mike & Platts,
Ken (1995), Performance measurement system
design: A literature review and research agenda,
International Journal of Operations &
Production Management, Vol. 15, Issue 4, Page
80-116
[11] Ibid.
[12] Hammer, Michael (2007), The 7 deadly
sins of performance measurement and how to
avoid them, MIT Sloan Management Review,
Vol. 48, Issue 4, Page 19-28